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The U.S. banking industry is slowly getting its footing after being on life support during much of the past three years ago. The FDIC’s 7,436 banks and savings institutions collectively earned $35 billion in the third quarter. It was the most profitable quarter since the three months ending in June 2007 (banks lost $38 billion in the fourth quarter of 2008).
Banks have cleaned up their balance sheets and increased their capital. The median risk-based capital ratio for the 100 largest banks is now 16% versus 14.3% two years ago. Bank failures are down to 90 so far this year after a combined 305 banks failed during the prior two years.
Yet, banks are far from out of the woods. Those 90 failures are more than the combined total between 1994 and 2007. The FDIC’s problem bank list has 844 names on it, down from 884 at the end of 2010, but up dramatically from 76 in 2007. The problems in Europe remain a great unknown and there is a fear that they could spread to the U.S. banks.
We turned to Charlottesville, Va. financial data provider SNL Financial to gauge the health of the biggest banks. SNL supplied data on eight metrics regarding the asset quality, capital adequacy and profitability of the 100 largest publicly traded banks and thrifts. The data is based on regulatory filings of banks and thrifts as of Dec. 1. The banks range in size from Beneficial Mutual Bancorp with $4.6 billion in assets to $2.3 trillion in assets JPMorgan Chase. SNL provides the data, but the rankings are done by Forbes.
Prosperity Bancshares ranks first in our third annual look at America’s best and worst banks. The bank, with $9.6 billion in assets, operates 176 branches in Texas with one-third located in the Houston area where the bank is based.
In Pictures: America's Best and Worst Banks
Full List: America's Best and Worst Banks
The Texas housing market did not experience the boom that places like Florida and California did and the downturn was subsequently much milder. Texas is one of the few states where home prices are currently higher than they were five years ago. The Texas economy was one of the last states to enter into a recession and one of the first states to emerge from it.
Prosperity took advantage of the economic downturn and acquired $3.6 billion in deposits and assets of Franklin Bank in 2008 when federal regulators closed Franklin’s doors.
Prosperity’s balance sheet matches Texas’ resilient economy as the bank’s non-performing loans as a percent of total loans (0.1%) and non-performing assets as a percent of total assets (0.1%) are among the lowest of any bank. The bank’s conservative nature is reflected in its ratio of reserves to non-performing loans which at 1,030% is tops among the 100 largest banks.
While other big banks were forced to cut their dividends during the banking crisis, Prosperity maintained its dividend and has raised the payout for 12 consecutive years. The stock is up 1% this year and currently trades at 1.2 times its book value.